Opening Comments

1. Opening Comments Peter Taylor Chief Financial Officer Office of the President

2. Overview

3. The University of California Includes 10 Campuses, 5 Academic Medical Centers and the Lawrence Berkeley National Laboratory • Established in 1868 and Governed by a 26-member constitutionally autonomous Board of Regents • Educated over 230,000 full-time equivalent students in FY 2009-10 and has conferred approximately 1.9 million degrees • Pre-eminent faculty who have won 57 Nobel Prizes, more than any other U.S. public university • 28 Nobel Prize winners currently on faculty • Over 380 University researchers have been elected to the prestigious National Academy of Sciences

4. QUALITY ACCESS AFFORDABILITY “… Amherst has created a model for attracting talented low- and middle-income students that other colleges can copy. It borrows, in part, from the University of California, which is by far the most economically diverse top university system in the country.” - David Leonhardt, “Top Colleges, Largely for the Elite” The New York Times, May 24, 2011 • A large proportion of UC students come from low-income families • UC’s strong financial aid program – including the Blue and Gold Opportunity Plan - have kept UC financially accessible to students from every income level • Over the past eight years, the amount of financial aid given to UC students has tripled. In 2009-10, for example, UC students received more than $1.5 billion in financial aid.

5. Undergraduate Access and Excellence at UC • California’s ongoing fiscal crisis has raised concerns that the University would be unable to sustain its strong track record of promising access and excellence. Recent data suggests the opposite: • UC enrolls more Pell Grant recipients than ever before, at every campus ($286 million in 2009-10) • Average high-school GPA of Fall 2011 California freshmen admits is 3.83 • 46% of first-year students are first-generation college students Pell Grant Recipients (UC 2008-09, 2009-10, 2010-11 & Select Universities 2008-09) 7%

6. Financial Summary & Budget Challenges

7. UC Overall Financial Position ($ in millions for the year ended June 30) http://www.universityofcalifornia.edu/finreports Financial Position

8. UC Operating Results($ in millions for the year ended June 30) Statement of Revenues, Expenses & Changes in Net Assets

9. Revenues & Expenses($ in millions for the year ended June 30, 2011) Revenues Expenses • - 65% of expenses relate to Salaries & Benefits • - OperatingExpenses grew by $1.2 billion or 5% • -Diverse revenue sourcescomprise UC’s core revenues • - Operating Revenues grew by $1.7 billion or 10%

10. Financial Myths and Facts Myth: Fact: Billions in Unrestricted Net Assets can close budget gap While Unrestricted Net Assets do not have externally imposed restrictions, these funds are already internally allocated Cost of UC Administration has risen over the years The cost per student has decreased steadily over the last 20 years, from over $21,000 to $17,400 Medical center revenues can be used to support core operations While the majority of UC hospitals’ revenue is restricted, some of the hospitals’ net revenue was transferred to the health professional schools in FY11 UC can use endowment to supplant losses in State funds Private giving greatly adds to what the University can accomplish, however the use of the funds is almost always restricted. Only about 2% is “unrestricted” in purpose

11. Per-Student Average Expenses for Education • The cost per student has decreased steadily over the last 20 years, from over $21,000 to $17,400

12. The Long-term Budget Problem • Core expenses will continue to increase • Pace of growth in mandatory costs is accelerated by post-employment benefit contributions • UC needs steady and predictable revenue growth to address budget shortfalls and meet our future financial expenses • Failure to bridge the gap threatens UC’s quality, access, and affordability • By FY2015-16 the budget gap is projected to equal $2.5 billion

13. UC Budget Gap: $2.5 billion Budget Gap: $1.5 billion Dollars in billions.

14. Alternative Budget Gap Scenarios for FY2015-16 Dollars in billions.

15. Credit Ratings Drive Our Borrowing Costs • Credit ratings assess the credit worthiness of our debt issues • Analogous to individuals’ credit scores • Assess probability of default and expected loss under a default • Assigned by credit rating agencies such as Moody's and Standard & Poor's • Ensure market access • Determine cost of borrowing Based on current municipal bond yields

16. New Initiatives

17. “Working Smarter” • Keep the pipeline full on • three levels of change: • Campus restructuring • initiatives • Regional centers of • excellence • Systemwide efficiency • measures • Vision: 10 campuses using ONE administrative framework: • Common, integratedfinancial and payroll systems • Common, integratedtime & attendance/HR systems • Common, integratedextramural fund accounting • Common, integrateddata warehousing • Common, integratedasset management • Common, integratedstrategic investment program • Common, integratede-procurement • Common, integratedenergy solutions • Common, integratedapproach to ICR $500 million of positive fiscal impact in five years

18. Campus and Regional Efforts Already Underway E-Procurement Extramural Fund Accounting System Organizational Improvement at Individual Campuses Existing Regional / Collaborative Efforts Future Regional / Collaborative Efforts Financial Systems Job Classification System Business Software E-Procurement USHIP / GSHIP1 and eventually more… Human Capital Management System Operational Excellence Process Simplification Facilities Maintenance System San Diego Super Computing and eventually more… Efficiencies Workgroup Restructuring Steering Cmte. Tiger Teams Streamlined Administration 1 Undergraduate/Graduate Student Health Insurance Program Organizational Excellence

19. CFO Mission, Vision, Values & Operational Focus Areas Mission: The mission of the CFO Division is to provide leadership, operational oversight, and system coordination of financial products and services for the UC Community. We add value with accurate, insightful, and timely information, analysis, and solutions that promote informed decision-making. 2011-12 CFO Operational Focus Areas Vision : The CFO Division will be known as a model for organizational efficiency and effectiveness that leverages: Integration of risk considerations to enhance decision-making processes and operations; Benchmarking to improve accountability, transparency, and performance; and Professional expertise to deliver results on behalf of our customers. Values: Effective Fiscal Stewardship Customer Service Continuous Improvement

20. Payroll Personnel System Replacement Project Overview • Deploy a single payroll system and a single human resources system across all ten campuses and five medical centers Status • Signed contract with Oracle • Implementation began in early September with PMO planning activities and training for UC team members • Early adopters/first wave implementation locations will be UCLA (including medical center), UCM, UCOP, UCSC and UCSD (including medical center). Projected Fiscal Impact • One-time implementation costs, excluding restructuring costs, total $151M • Ongoing costs are expected to be ~$60 million over the next eight yrs • Over this period, cost reductions/savings are expected to be ~$750 million, resulting from technology efficiency gains, process standardization and consolidation of transactional activities into a shared services center. • Project Net present value is over $250 million* * 9% Discount Rate

21. GOAL: Increase annualized savings from $65mm to $200mm and help drive efficiencies Central data repository from all locations (financial, procurement, P-Card, etc) Ability to produce reports on all line item purchases Ability to scrub procurement systems and bring back “tags” for minority vendors Move all RFP’s from paper to on-line Ability to see all contracts (t&c’s, language, etc) and streamline the contracting process Introduce reverse auction for better pricing on items with set specifications Track all procurement opportunities/needs to allow joint projects Use SharePoint to help with version control and to reduce email attachments P200mm Technology People & Process Build a new commodity focused team of specialists Build a strong analytics and reporting team and processes Build a “compliance” team to make sure the RFP and contracts process is followed Manage the data flow to eliminate the repeated request for “more” data to the campuses Leverage the use of GPO contracts to help drive savings and efficiencies On-going training and support for campuses and UCOP Define the “value” all will provide as part of their role Implementation starts in early 2012 and will run through 2014

22. Balance Sheet Management $8.9 billion In STIP Enhance TRIP Investment $1 bn transfer generated add. $40M in FY10-11 Liquidity Mgmt. Ratings Strategy, Bank lines of credit, reserve analysis Strategic Balance Sheet Management Debt restructuring and hedging strategies Sell MOP Loans Increase liquidity Central Bank and expanded SIP

23. UC Strategic Investment Program • 1 STARs is still in the developmental / conceptual stage. It’s roll-out date is not yet determined.

24. UC Contribution to Economic Activity UC generates about $46.3 billion in economic activity in California and contributes $32.8 billion to the gross state product Every $1 that is cut from the State’s support of UC would result in direct losses of about $2.10 in the state’s economic output, $1.30 in employee compensation, and $1.60 gross state product plus a potential for negative secondary impacts associated with a decline in the scale and quality of UC’s academic and research programs Every $1 the California taxpayer invests in UC, leveraged by other revenue sources, results in $13.80 in economic output • $25 billion in annual direct spending from the University creates successive rounds of economic activity through consumers and businesses • Economic activity related to UC supports about 1.8% of CA’s gross state product • California’s $3.35 billion in UC-related spending including general support, Cal Grants, contracts, health care payments, and special appropriations is matched by an additional $17 billion from non-state government sources • Through the economic “multiplier effect” the $3.35 billion investment provides foundation for a total economic impact of $46.3 billion creating $13.80 in economic output for every $1 of state investment • In terms of employment, UC creates 128 jobs per $1 million in state taxpayer funding or about $7,790 per job • This report evaluates the primary economic impact of two hypothetical funding scenarios, one in which the state cuts UC employee compensation and another in which it cuts total UC operating expenditures. Report can be found at the following link: http://www.universityofcalifornia.edu/regents/regmeet/sept11/f7.pdf

25. UC Continues its Commitment to Excellence Instruction FY2009-10 UC students received more than $1.5 billion in financial aid The University of California Research 57 Nobel Prize Winners Including 25 Since 1995 Public Service Top THREE spots in the Washington Monthly's 2010 annual college rankings

26. Thank you!And enjoy the Business Officer Institute QUALITY ACCESS AFFORDABILITY